Eircom’s future limited without mobile, O’Reilly

25 Jul 2005

“It is my conviction that without mobile Eircom’s future would have been unnaturally limited and consequently Irish consumers would have been disadvantaged,” the company’s chairman Sir Anthony O’Reilly told its AGM this morning.

O’Reilly qualified this remark by explaining despite work undertaken by the company’s management to reduce costs, defend market share and to grow broadband, substantial growth is simply not available in the fixed-line industry.

O’Reilly’s words came within hours of the company emerging as the successful bidder for Ireland’s third mobile operator Meteor after Smart Telecom dropped out of the race last week. The company is paying €420m for Meteor through a rights issue, however analysts such as Davy Stockbrokers have warned that the price may be too high.

However, O’Reilly said for a national enterprise such as Eircom “new growth is an imperative and only mobile can provide this in a substantial way. Re-entering mobile doubles the addressable market for Eircom, from the €2bn spent annually on fixed-line telecoms to a potential market in excess of €4bn annual revenues.”

With a 10-11pc market share of the Irish mobile market, O’Reilly said Meteor has established a significant reputation in the prepaid market through a reputation for low prices. “It is no surprise Meteor is more valuable to Eircom than to other bidders that have little presence in Ireland. Our publicly stated intention is to double its market share over the next three to four years as we combine Meteor’s expertise with Eircom’s exceptional reach into the Irish telecoms market.”

Commenting on the issue of 3G, O’Reilly said the company is watching developments in this space. Because Meteor’s GSM network is 2G moving into the 3G space would require significant capital spend by Eircom. “The ever-increasing drive for bandwidth is a feature of our industry, providing ever-wider highways for data traffic. Our job, management’s job is to focus on answering two very real questions: What services do consumers want and what prices are they willing to pay for them? The classic marketing axiom applies: If there is a gap for consumers we have to ask is there a market in that gap.”

In terms of Eircom’s existence as a non-state entity providing utility services, O’Reilly contrasted his company’s performance in reducing prices with state-owned ESB’s recent controversial proposal to increase electricity prices by 10pc. “The ESB is currently proposing further price increases of 10pc bringing the overall increase in electricity prices for consumers to an incredible 55pc over the past four years, or 37pc in real terms (inflation adjusted).

“Contrast this with Eircom, whose prices have fallen by 50pc in real terms in the past seven years. Eircom has no fewer than 60 licensed competitors that now hold a significant combined market share. Compare this to the electricity industry. There are only six providers and only the ESB has a significant retail presence.”

O’Reilly also reserved comments for the Commission for Communications Regulation (ComReg), stating he was concerned about the path of regulation in Ireland. “It remains beyond comprehension why a cable into a house is unregulated, a mobile signal is unregulated, a satellite service is unregulated but a copper wire is regulated to within an inch of its life.

“If ComReg is unable to do its best to ensure there is an adequate incentive for investors, then they should at least practice forbearance in the face of unpredictable markets for new technologies. The physician’s motto primum non nocere [first, do no harm] should be carved above the regulator’s door. It is time for the key principle behind the European regulatory framework to be met: lighten regulation and use competition law as the sole model for regulating a fiercely competitive telecoms market,” O’Reilly said.

Commenting on the ongoing broadband issue that has garnered strong media and political interest over the past year, O’Reilly said he believed the word broadband has been misleadingly and wrongly extended to define internet usage, the state of telecoms and the technological advancement of Ireland.

O’Reilly said Eircom is responsible for 95pc of all broadband connections in Ireland, internet penetration – as defined by the number of users – is close to the European average and almost 800,000 Irish homes use the internet, mainly on his company’s network.

“In a very short period, more than one in 10 households have signed up for broadband and nearly one in four homes with PCs have been connected to broadband. Broadband has been rolled out by Eircom to every town in Ireland and we are continuing this programme into smaller communities with the intention of achieving 90pc coverage by March 2006. Eircom’s broadband prices compare very favourably with other EU countries and have been benchmarked at below the EU average price,” O’Reilly claimed.

Pointing to a fall-off in consumer interest following the early adopter phase of broadband whereby 140,000 people have signed up for the service O’Reilly warned: “Yet a massive number of internet users, 415,000 with Eircom alone, remain as dial-up customers rather than broadband customers.

“Some of these customers cannot get broadband – while we are straining every sinew to make it available to as many people as possible – but many simply do not yet see a sufficient benefit. This is not altogether surprising. Over half of the remaining dial-up market spends less than €10 a month on internet usage.

In conclusion, O’Reilly also called on the Irish Government to fund the remaining 10pc of broadband rollout as done by the UK government in Scotland and Northern Ireland. “In Northern Ireland and Scotland, the UK government co-funded the enablement of uneconomic exchanges jointly with the incumbent [BT] and the same can be achieved here.”